The talk of this year's VMworld conference in Las Vegas was how much of a competitive threat Microsoft, which weeks earlier announced the free release of its hypervisor product, will prove to virtualisation leader VMware.

The theme behind Microsoft's push into the virtualisation market, as exemplified by guerrilla marketing campaigns at the VMworld event, is that it can offer much of VMware's basic capabilities at a fraction of the price.

The software giant is giving away its Hyper-V hypervisor product to any purchasers of Windows 2003 or 2008 server editions. It's an offer that hasn't gone unnoticed by end users.

Michael Tran, chief technology officer at Digital Sense, a new datacentre operator set to launch in Brisbane, has been considering both the Microsoft and VMware paths, visiting Microsoft in Seattle several weeks ago, and VMware last week in Las Vegas.

He had some positive things to say about Microsoft's entry into the market. "Microsoft's main pitch is that anyone with Windows could have the hypervisor for free, so the net cost of the software is zero," he says. "Anything else is going to look expensive against it."

The Microsoft product "is very cost-effective for smaller organisations and very powerful", Tran told ZDNet.co.uk's sister site, ZDNet.com.au. "It's probably not up to the same level as VMware on many aspects, but then again it has some things that are ahead. Hyper-V is, for example, extremely easy to deploy."

Is price important?
VMware chief executive and president Paul Maritz says he is not particularly concerned about competing with Microsoft on price. The price of software is important, he said, "but only up to a point".

"We are in a competitive market, we can't charge whatever we would like," he told ZDNet.com.au on the sidelines of VMworld. "Every software vendor has to deal with the reality of competition. It comes from direct competitors and it comes from the open-source movement."

"One of the fabulous things about the open-source movement is that they are the ultimate enforcer of fair pricing. If you don't evolve, they will clone your software, and take away your value."

Such a threat, Maritz says, motivates commercial vendors to "constantly renew their value proposition" with new features.

"We have to make sure that what we offer really offers value for money, and that changes over time," he says. "VMware won't sit still. We have new functionality coming, we're going to double-down our bets, we're going to go in some places fundamentally [in the case of the virtual datacentre operating system] where Microsoft is uncomfortable going."

Serguei Beloussov, chief executive of Parallels Software, competes in some markets with both Microsoft and VMware.

"I don't see VMware losing sales to Microsoft because Microsoft is cheaper," he told ZDNet.com.au, adding that most large customers look beyond the cost of individual components when determining price.

"For them, the total cost of ownership is important, the cost of the virtualisation software itself is only a small portion of all of it."

"VMware has a lot of advanced functionality for optimising memory and getting more out of a processor," he says. "If the VMware software is a bit more expensive, but is more efficient and means less hardware to solve the overall problem, it is conceivable that as a total cost of ownership it might actually prove to be cheaper."

"Rather than looking at the cost of the hypervisor, you have to say, if I were to run my set of applications on VMware or run it on Microsoft, what would the total cost of all the hardware, the software and the storage be?"

Tran baulks at VMware's pricing at times, but in building a large-scale datacentre, he believes that the potential return on investment from virtualisation technology cancels such costs out.

Bogomil Balkansky, senior director of product marketing at VMware, says most VMware customers see a return on investment within six to nine months. "Our experience so far has been that customers are generating so much value for customers that price is not a major objection in our sales cycle," he says.

Two distinct markets
McIsaac says on a feature-function basis, Microsoft's hypervisor "does not compare" with the market leaders.

"It's not as proven to be robust, not as proven to be as scalable, it doesn't have live migration," he says. For that reason, he expects VMware to continue to appeal to the upper end of the market: service providers and large businesses, while Microsoft's price proposition will appeal to smaller businesses.

"The two will have an interesting battle space," agrees Tran. "For a lot of smaller players, VMware will be out of their reach, whereas Microsoft Hyper-V will be in reach. Hyper-V will have its uses in smaller organisations that can't afford enterprise-class storage systems and blade servers and the like," he continues.

"But for enterprise clients, clients that are looking for the best level of support, redundancy and maintenance, VMware have definitely got it. At that level of enterprise-class infrastructure, when you're talking blade servers and fibre channel storage arrays and iSCSI products, really the [virtualisation] software is not that expensive."

The verdict
Beloussov expects Microsoft to gain ground on VMware over time. "Microsoft will have a full platform for virtualisation," he says. "Maybe it will take two years, maybe five years. But it's going to happen."

But McIsaac still has his bets on VMware. "VMware will still win out," he says. "There will be some very Microsoft-orientated shops that will say, we like the Microsoft vision, we want to go down that track. But for most organisations today, VMware's is the right strategy to pursue."

Maritz, meanwhile, is trying his best to sound unconcerned. "If you look at what Microsoft announced last week, what they have basically said is that VMware has exactly the right list of features, we're going to knock 'em off one by one, we're gonna sell them to you at half the price, and we'll have them ready for you in two years time," he says.

"If we [as VMware] can't make hay with that, we don't deserve to be in business."

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